- Price Gouging Saves Lives by David Brown.
- In a Crisis, Markets More than Ever, by Llewellyn H. Rockwell, Jr.
- Oil Prices Again, by Murray Rothbard
- Creating Economic Crimes, by William Anderson
Source link: http://blog.mises.org/4022/a-price-gouging-reader/
A Price Gouging Reader
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Wonderful article by David Brown on how price gouging saves lives. I have occasion at the school where I am a librarian to help middle school students with their persuasive (pro or con) research papers. They pick subjects ranging from steroids in sports to genocide (they usually take the con side on this one). Getting them to think critically about a subject which THEY ARE CERTAIN has only one justifiable position, like “price gouging,” is always a difficult task.
The John Stossel videos help. They are SHOCKED beyond belief when they see government shutting down private charities because they lack, say, a 24 hour onsite nutritionist.
A book like Hazlitt’s Economics in One Lesson, written for middle and highschool students, would be enormously helpful. Of course, few in the public schools would order such a book.
Paul Pennyfeather
ummm…don’t know. I’ll never forget the story of my grandmother who fled during the war from Belgium to Holland. underway she needed food, and a farmer offered her an egg (1) for 50 Belgian Francs, which is recalculated to prices today, about 50 €. She slapped the egg out of his hands…
Re-reading Llewellyn Rockwell’s article reminded me that I’ll be attending an event in October where Mark Zandi, Chief Economist with Economy.com, will be speaking. Does anyone have suggestions for questions I might ask him?
More broken-window-fallacy-spotting.
http://www.economist.com/agenda/displayStory.cfm?story_id=4339099
“While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”
More broken-window-fallacy-spotting.
http://www.economist.com/agenda/displayStory.cfm?story_id=4339099
“While big hurricanes like Katrina destroy wealth, they often have a net positive effect on GDP growth, as the temporary downturn immediately after the storm is more than made up for by the burst of economic activity that takes place when the rebuilding begins.”
Yes, Nolan! That quote gets right to the heart of the broken window fallacy. And it states it in terms that would be obvious if they were physical instead of economic. Katrina destroyed wealth. The recovery will generate income.
Now, let’s put that in physical terms that are very immediate to the issue at hand. The breach of the levees raised the water level in New Orleans (destroyed wealth), but will create a burst of pumping activity as the city is drained.
The fallacy, at its core, is the result of confusion between wealth and income. Disasters destroy wealth. Rebuilding what was lost results in income for the people supplying the materials and labor. They will end up wealthier than they were. It is an open question whether they will end up wealthier than they would have been had the disaster not occurred. However, they’re income and resultant increase in wealth is the result of the descrease in wealth caused by the disaster.
Cogito:
The story of your grandmother is a memorable one for sure. But i’m not sure what moral lesson you have drawn from it. I assume the egg broke on the ground after she slapped it out of the farmer’s hands. Perhaps the moral is if you ask for more than i am willing or able to pay for your property, i now have the right to damage or perhaps even steal your property. That’s an unfortunate lesson and one that i would imagine is hard to get over.
I just heard a CNN reporter helpfully explain that during disasters, we see both the bright side (for example, strangers helping each other) and the dark side (looting and price gouging) of human nature.
That’s right — price gouging is like looting.
The economists are correct when they say there’s nothing wrong with price gouging, that everyone is better off if sellers price their goods high enough to clear the market. I think the reason many people resist these arguments is that they would like sellers to at least have the opportunity to be compassionate. Selling at the market price maximizes profit, but many sellers don’t want to maximize their profit during the emergency; they want to help others by not taking advantage of the situation. (And many non-sellers, including especially politicians, think that sellers should feel this way, or be forced to act as if they feel this way.)
There is a solution to this conundrum. Sellers can (a) price their goods ruthlessly high so as to clear the market, and (b) take their “excess” profit and donate it to the poor. (Actually, they should re-invest their profit toward increasing their supply if possible, but donate any remaining profit.) Of course, part (b) should never be forced on the seller, but a seller who wishes to act compassionately can follow this course in good conscience.
You may think there’s no difference between a seller keeping his prices down, versus what I have suggested, because the poor can simply take the donated money and buy the high (market) priced goods. But there is a crucial difference: in the second case, the poor can spend the money on anything they choose (not just at that particular store), or save it; that is, they economize, and the market is rationalized.
The 50 Francs to 50 Euro comparison is a long way off, too. 50 Francs is worth just 1.24 Euro today; adjusting back to WWII you might get to 20 Euros. But you couldn’t buy eggs at todays prices during the war, either…
Merchants always try to price their goods so that they will be able to sell them all. Raising the price in times of emergency is justified because they still sell their goods, but the higher prices ensure that only those who really need the product the most buy it.
Nobody has the right to steal goods produced or provided by others. The “gouger’s” inventory is *his* property; he has the right to set any price he wishes to set. *Or even refuse to sell at any price.*
That said, I would draw two distinctions here.
1. A distinction between the doctors, churches, charities, et al. providing temporary humanitarian help out of their marginal surplus – and people (with or without sufficient marginal surplus to do the same) who look to make a buck off a disaster. Vultures provide a valuable service in nature; however, human beings have the choice to be or not to be vultures. I’m thinking of people who are several states away from a natural or other disaster who load up their trucks with goods that they intend to sell to the victims “for a price” (grossly inflated). This is better than nothing, agreed. But it is on a lower order morally, and everyone knows it. (I.e., giving charity out of one’s marginal surplus is morally better than seeking to add unique value to one’s surplus in a disaster.)
2. A distinction among the aforesaid vultures: those who charge only somewhat more than they otherwise would do (so as to cover their increased costs and to provide a deserved, somewhat higher than normal profit for themselves) – and those, on the other hand, who gouge. The term names a real phenomenon. One hundred dollars for a sip of clean water in N.O. is a hypothetical example of what I have in mind here; or (say) $10-per-gallon gas. Or, in exchange for protection against not being raped, a demand than one give one’s protector a blow job (protection racket).
What to do about the vultures? Nothing, except have private contempt for them. Read the first lines of my comment. Yet, interestingly enough, some “pro-gougers” (to coin a term) seem to suggest that the vultures deserve as much respect and praise as the charitable producers do! This is really going too far. “The price” which they got for the goods they made available is set so high that they have no right to expect special respect and gratitude. The victims paid through the nose; now they have to praise the gougers as being roughly equivalent morally to producers who are charitable? Don’t make me laugh!
If you dislike these conclusions, at least consider that you had them free of charge.
As an attorney, I am asked if laws against “price gouging” are wise (or constitutional). Laws against price gouging have rarely been litigated, because the laws are almost impossible to enforce (and that is good). The extent to which anti-gouging laws are enforced is the extent to which the laws cause hoarding, shortages, poverty, misery and even mass death.
There is no such thing as “price gouging,” and the pedestrians who condemn it never define it, and that is why every anti-gouging law is different. That is why the comments that follow are not intended as legal advice, and each reader should consult his own laws and lawyers.
Laws offer various ways for free people to sell their property freely, and to charge whatever they wish, whenever they wish. The following issues provide areas to examine:
1. “Gouge” before a “state of emergency” is declared. (Some anti-gouging laws only apply after a politician declares a “state of emergency.”) In this way, people who support anti-gouging laws will have to pay higher prices even sooner for your goods.
2. “Gouge” after a “state of emergency” is dropped. In other words, hoard goods. Hold goods to sell later. In this way, people who support anti-gouging laws will force themselves to go without for longer. Hoarding also avoids “price-gouging” accusations or even theft from greedy socialists.
3. “Gouge” outside of the specified area. In this way, people who support anti-gouging laws force themselves to drive farther to obtain your goods.
4. Use the internet or online auctions to offer goods for sale. Some laws might not apply to online sales, especially if the agreement is made with someone outside of the specified area. This method can also require the buyer to arrange for his own delivery or pick-up.
5. Auctions might avoid some anti-gouging laws. A seller might drive into an area with a truck load of goods and invite offers from interested buyers who set their own “gouge” price by bidding against other buyers. In this way the seller does not offer goods for a “gouge” price.
6. Barter. A seller can avoid setting any monetary price and can ask buyers to offer barter in exchange. A barter exchange is of no specific “price” or is of unclear value. With barter the buyer will set his own “gouged” price via trade.
Remember that anti-capitalists believe that every free person is a “hoarder” who deprives the world of his property. Anti-capitalists believe that everyone is a “gouger” because every free market price is “gouging” that deprives the world of his property.
Government is the only true form of “price gouging” and “hoarding” and in the Union of Soviet Socialist Republics, the People’s Republic of China, and the National Socialist German Workers’ Party (the socialist trio) it caused trademark shortages, poverty, misery, starvation and mass murder. They were the worst hoarders and price-gougers ever.
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